So far, Colombia is safe
Unlike its Latin American counterpart Mexico, Colombia (ICOL) has not been mentioned explicitly by the new US administration when it comes to trade. The US is the largest export destination for Colombia. The two countries already have a trade agreement known as CTPA (United States-Colombia Trade Promotion Agreement) which was signed in 2006 and has been in force since 2012.
As far as goods trade is concerned, the graph below will shows that for the most part, the US has had a goods trade deficit with Colombia, though it enjoyed a trade surplus in 2014 and 2015. This may be part of the reason why the Trump administration has not attacked the CTPA — at least so far.
However, this is not to say that Colombia (GXG) will be immune to the Trump Administration’s views on trade protectionism.
The Colombian peso has tanked, along with several emerging market currencies after the US presidential elections in November, going beyond the 3,100 pesos to one USD. However, the announcement of a crude oil production cut by OPEC and non-OPEC members helped support the peso and it is now trading at 2,850 to one USD. Increased oil prices (USO) are also expected to support the peso.
Not worried on trade
There are two reasons why Colombia is not excessively worried about the terms of its bilateral trade with the US.
First, as seen from the figures provided in the above graph, the size of overall trade – when looked from the perspective of the US – is low. As the US administration allocates resources to attacking countries with larger trade deficits such as Mexico and China, Colombia would find itself quite low on the list of priorities.
Secondly, Colombia is a close ally of the US when it comes to the war on drugs. With hopes of ensuing peace after coming to terms with FARC (Revolutionary Armed Forces of Colombia), the country would expect cordial relations with the US to continue.
Pacific Alliance comes together
At the same time, Colombia is supporting Mexico, along with Peru, another Pacific Alliance member, as far as trade restrictions by the US are concerned.
Colombian President Juan Manuel Santos was reported by the New York Post as saying “We want to join the call of countries that adhere to the principles that have been so good for the world: free trade, respect for treaties… multilateral solutions.”
This solidarity with its Latin American trade partners is to ensure that its stance on trade protectionism is known, but is diplomatic enough not to irk the US. In an uncertain world, Colombia will likely give priority to its strong political and economic relationship with America.
In the next article, we’ll look at an emerging market in Europe which is keep a close watch on US trade policy.
